DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil and product futures jumped Monday morning on reports that Iran fired warning shots at a U.S. warship trying to pass through the Strait of Hormuz.

Near 8:10 a.m. EDT, ICE Brent for July delivery rose $2.68 to $110.85 bbl, and NYMEX WTI for June delivery advanced $1.48 to $103.42 bbl.

Downstream, NYMEX ULSD futures for June delivery edged higher $0.0183 to $3.9647 gallon, and front-month NYMEX RBOB futures moved up $0.0259 to $3.6211 gallon.

The U.S. Dollar Index strengthened by 0.28 points to 98.285 against a basket of foreign currencies.

U.S. President Donald Trump on Sunday announced that the U.S. Navy starting Monday would provide safe passage and guide stranded vessels through the waterway blockaded since early March, putting downward pressure on prices. Prices reversed course Monday morning, however, after reports emerged that a U.S. warship trying to break the Iranian blockade turned around after Iran fired warning shots. Roughly a fifth of global petroleum supply has been stranded in the Persian Gulf since Iran blockaded the strait in response to the U.S. and Israel launching attacks at the end of February.

U.S. attempts to restart flows, which the President dubbed "Project Freedom," may also jeopardize the ceasefire in place since early April. Tehran over the weekend extended its territorial claim over the Strait of Hormuz and said it would consider any U.S. interference a breach of the ceasefire.

Hopes for an immediate diplomatic resolution of the conflict faded further after the White House over the weekend rejected Iran's new 14-point proposal to permanently cease hostilities. The plan reportedly allowed Iran to continue uranium enrichment and assert control over traffic through the Strait of Hormuz, opposing two key U.S. demands. At the same time, President Trump in the same social media post announcing "Project Freedom" claimed that U.S. representatives were in "very good talks" with Iran which could lead to "something very positive for all".

Seven OPEC+ members, meanwhile, on Sunday decided to raise production quotas for June by 188,000 bpd. The move by the group which just lost the UAE as a member was purely symbolic, given current production shut-ins caused by the lack of outlets and full inventories.